Gujarat unhappy with high tariffs at recent solar auction

Gujarat unhappy with high tariffs at recent solar auction

The 700 MW auction held in December was won entirely by foreign developers.

Bengaluru: Winning tariffs by Softbank backed SB Eenergy, Finland’s Fortum and French utility Engie in the latest solar auction in Gujarat are much higher than expected, prompting the state to consider whether the auction should be cancelled, officials said.

The 700 MW auction held in December was won entirely by foreign developers. SB Energy got 250 MW at a price of Rs 2.84 per unit, while Fortum and Engie got 250 MW and 200 MW, respectively, both at Rs 2.89 per unit.

In the previous auction held by the Gujarat Urja Vikas Nigam Ltd (GUVNL) in September 2018, the lowest tariff had been Rs 2.44 per unit, and the Gujarat government is unhappy over the substantial rise within three months.

“We may not agree with the tariff. It seems to be on the higher side,” said a senior state government official involved in the matter. “A decision will soon be taken. We are looking at options. We were expecting a much lower rate.”

GUVNL had earlier cancelled a 500 MW solar auction it held in March in which the lowest tariff was Rs 2.98 per unit.

Some experts said the tariff increase in the December auction could be attributed to the condition set by GUVNL that the solar projects should be located at a solar park in the state, unlike in the September auction, whose projects could be located anywhere. Solar park charges are generally high. Other industry sources felt higher costs of capital and currency volatility (much of the solar equipment used is imported) had been factored into the December tariffs, thereby raising them.

In contrast to the Gujarat government, they felt the rise in tariffs was an encouraging sign, showing bids were becoming more realistic.

Both developers and bankers had been worried about the declining trend in tariffs earlier in the year, and feared that in their zeal to grab projects at auctions, some developers were making bids that were plain unviable.

The winning developers in the December auction have not yet received the Letter of Award, which is usually issued with a week after the auction. A GUVNL official said approval of the tariff from the state energy ministry was still awaited. The official would not comment on whether the auction would be cancelled or not.

The enthusiastic response of foreign companies was attributed to GUVNL’s reputation as having the best financials among all state discoms in the country. “If the auction gets cancelled, the move could send wrong signals to the foreign investor community,” said a developer. “We are going ahead in developing the Dholera site where we propose to install about 5000MW of solar power,” the Gujarat government official said.

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